Question

You have recently been introduced to Laura Spencer, who is the Chief Financial Officer (CFO) of a services firm that specialises in providing on-site technical assistance for computers and networks. Laura knows that you have recently obtained employment as a forensic accounting graduate and arranges for you to meet over coffee. Laura brings along copies of the company’s cash-flow statements to this meeting and after reviewing these financials, you note that cash-flows have been decreasing for the last three (3) years. When you query Laura as to reasons why cash flows have been continually decreasing, she responds by saying “I just don’t understand why this is occurring; even though we seem to have more customers year-on-year, the cash doesn’t appear in our financials”. On hearing this, you inform Laura that you believe fraud may be occurring in her company and suggest that cash collections should be the initial starting point for any investigation.

Required:

Assume that you were asked to investigate this case. Explain what investigation technique (or techniques) would be best for finding the potential fraud in this case.

Answer 1

The investigation techniques to be used are:

1. Separation of duties: Ideally one employee should not be given control over the entire accounting procedure since this increases risk of fraud. Seperating the duties helps to check the work of one employee by another which helps in early detection of fraud. in cash transaction duties should be seperated including cash receipts,vcash disburements, bank reconciliations, cash counts etc.

2. Rotation of Employees: When an employee performs one task continuosly he may get too compfortable in that position and may start finding ways to commit fraud, hence employees should be continuosly rotated so that the work of old employee can be checked by new employee.

3. Surprise cash counts: Surprise cash counts help instill discipline among employees since they will be afraid that they may be caught. the surprise check should check all cash handling process from receipt to deposit.